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Neelie Kroes

Member of the European Commission in charge of Competition Policy

Cross-border mergers and energy markets

Villa d’Este Forum on “Intelligence 2006 on the world, Europe and Italy”
Cernobbia, Italy, 2nd September 2006

Ladies and gentlemen,

Thank you for inviting me to Villa d'Este to join you for a debate which brings together such a distinguished audience. In this brief introduction to our discussion I will set out some key issues which are essential for the future of our energy markets. I would also like to highlight how we in the Commission are working to tackle some of these questions with our stakeholders in the Member States, both industry and consumers.

However, before addressing the functioning of the energy markets, I would like to say a few words about a perceived challenge to European market integration – protectionism. We have seen recent examples of this, not least in the energy sector.

Cross-border mergers are increasing in the EU, and particularly so in sectors once closed to competition and which are gradually being liberalised, such as gas and electricity. Look at the evidence: between the years 2000 and 2005 there was a 75% increase in the number of cross-border mergers in the energy sector which fell within the Commission's merger control jurisdiction. In the first half of this year alone there have already been ten cross-border energy mergers which fell within the European Commission's jurisdiction – that's three more cases than we had in the whole of 2005. And we are seeing similar upwards trends in the financial services, transport, and telecoms sectors.

The reality of the Internal Market – not to mention the single currency - have brought the economies of Member States much closer together and encouraged European undertakings to grow across national borders. European undertakings are actively taking advantage of the opportunities of the Internal Market.

This is a welcome development, as cross-border mergers tend to be better for customers (both businesses and individual consumers), than mergers between national players that would otherwise compete in the same national markets.

The vast majority of cross-border mergers have gone ahead without any interference from national governments. But in a small number of well-publicised instances, direct or indirect steps have been taken by Member States to prevent or frustrate cross-border mergers.

I'm all for champions - European champions who can go out and win on global markets. But let's be under no illusion: it is markets and not politicians that pick the winners, and artificially-created national champions may have short-term appeal but this is often to the long-term detriment of European competitiveness and European consumers.

The EU’s single market rules as well as Article 21 of the EC Merger Regulation clearly ban unjustified measures taken by Member States to prevent cross-border mergers of a European dimension. The Commission is determined to ensure that these rules are observed and respected in all cases.

In the last days we have formally expressed our concern to the Spanish authorities concerning the conditions imposed by the Spanish Energy Regulator CNE in relation to E.ON's bid for Endesa. Our preliminary conclusion is that the compatibility of most of these conditions with EC law is doubtful. We will remain vigilant in this case as in others, and we will continue to take a firm stance and speak out clearly in any case where Member States do not play by the rules. At the same time, while the European Commission takes all such individual instances very seriously, it is important not to over dramatise the situation either. These are still isolated incidents and if they prove anything, it is that the single market is finally starting to work in areas we would not have imagined twenty or even ten years ago.

And clearly energy is a prime example of what would have been a 'no-go' area even as recently as a couple of years ago. The liberalisation Directives adopted over the last ten years paved the way for competition, with the aim of increasing efficiency in the production, transmission and distribution of energy.

However, in recent years it has become all too clear that a fully competitive single European energy market is not yet a reality. Competitive forces are still not functioning at their optimum level. That is a real source of concern. It is business and commerce that create growth and jobs, not politicians. But it is equally true that there is a clear duty on policy makers to put in place the best possible conditions to let business flourish. It appears that in this sector at least, there is still some way to go. And competition policy bears its share of the responsibility.

So last year I launched an inquiry into competition conditions in the electricity and gas sectors, with the aim of identifying the barriers to competition and working out how to remove them.

The initial findings of that inquiry confirm that there are serious malfunctions in Europe’s energy markets. In particular, we have found evidence that:

  • Wholesale markets are still very concentrated, creating scope for incumbents to raise prices.
  • Consumers are denied choice due to the difficulties faced by new suppliers trying to enter the markets. Insufficient separation of infrastructure and supply functions prevents new entrants from reaching the final consumer.
  • There is no significant cross-border competition – for gas, it is difficult to secure transit capacity on key routes and for electricity there are long-term capacity reservations and not enough inter-connector capacity.
  • A severe lack of transparency prevents new entrants from competing effectively.
  • Finally, prices often are not determined on the basis of effective competition.

This is quite a damning list of problems! So what role is competition policy playing in solving these issues, completing the single market in energy, and ensuring secure supplies at affordable prices?

  • First of all, the Merger Regulation continues to have an important role to play. The sector inquiry has helped us to identify suitable assessment criteria and efficient remedies.
  • Secondly, a number of investigations into possible violations of the competition rules have already been launched. These are now being pursued with full energy.
  • Thirdly, the final report on the sector inquiry will be presented early next year in parallel with my colleague Andris Piebalgs’ report on progress on liberalisation of the energy markets – including the question of the possible need for new regulation in this area.

You are all aware of the Commission’s Green Paper on a European Strategy for sustainable, competitive and secure energy. Looking forwards, we want the Spring European Council to adopt the clearest and most comprehensive Action Plan possible to tackle the current challenges. Now, more than ever, we need to work together side by side - policy makers, regulators, the industry and its consumers – to put in place the lean and competitive energy sector on whose success the future prosperity of the whole European economy depends.

This is real agenda for the debate we urgently need to have in Europe. So let's not allow ourselves to be side-tracked by the out-dated rhetoric of protectionism. That is no way to move towards the ambitious objectives set out in the Lisbon strategy. I for one am committed to ensuring that competition policy and rigorous, effective enforcement of the rules contributes fully to that vital agenda.

I hope that this brief introduction has provided a few points of interest to stimulate our discussion on this most interesting and topical issue. I look forward to your thoughts and comments.

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